Inflation rises in Kuwait: The cost of food blamed for 0.3 per cent increase of inflation

Kuwait’s inflation edged up to 3.1 per cent in July and should remain contained this year, says Daniel Kaye, Senior Economist, for National Commercial Bank

Kuwait’s inflation edged up to 3.1 per cent in July and should remain contained this year, says Daniel Kaye, Senior Economist, for National Commercial Bank.

“Inflation in the Consumer Price Index (CPI) firmed slightly to 3.1 per cent y/y in July from 2.8 per cent in June, thanks almost exclusively to a sharp increase in food prices,” said Kaye. “Even at this rate, however, it remains much lower than a year ago. Moreover, core inflation (i.e. excluding food and beverages), was unchanged at a modest 2.1 per cent.

“Food price inflation jumped 1.8 per cent m/m to 6.6 per cent y/y, up from 4.9 per cent y/y in June. Most of this was driven by a 14.8 per cent m/m increase in vegetable prices. The rise in overall food prices added some 0.3 per cent points to the headline rate of inflation, effectively contributing all of the increase seen in July.

“While it is tempting to link rising food prices to the recent bout of drought-linked hikes in global agricultural prices, it may be too soon for global price hikes to have filtered through the domestic supply chain. More likely, the rises were driven by seasonal effects related to the holy month of Ramadan. If so, the prospects going forward are mixed: while Ramadan-linked food price hikes may reverse, the bulk of the globally-driven price increases may still be ahead of us.

“Outside of the food sector, inflationary pressures remain fairly subdued. The housing services subcomponent (mostly residential rents) failed to register an increase for the seventh month in a row, keeping the inflation rate at just 1.5 per cent y/y. Inflation in all other sectors decelerated, except in the ‘other goods and services’ segment, where it edged up to 2.5 per cent y/y from 2.2 per cent in June. Even here, however, inflation remains close to a four-year low.

“Overall, we think inflation is set to remain contained this year, with favorable base effects perhaps even pushing it back below three per cent in the near-term. A combination of higher food prices and a strong consumer sector present scope for a slight pick-up going into 2013, however.”